Recent figures have revealed that the UK has fallen out of the top 10 of a list of countries with the best pension systems in the world. The rankings come from the Melbourne Mercer Global Pension Index, which grades the pension systems of twenty-seven countries by looking at both state funded and private components.
The UK was shifted down from 9th to 11th place last month, a move which takes the country out of the top ten for the first time. This means that the retirement income of British pensioners is considered worse than that of those in countries including Ireland and Chile. Denmark and the Netherlands were ranked in 1st and 2nd place respectively thanks to the ‘first class and robust’ retirement income provided by their pension systems.
The report from Melbourne Mercer said that the downgrading was made after considering the reduction of expected pension size in relation to wages while at work, and because overall incomes during retirement have become smaller due to cuts in both state and occupational pension schemes. Other factors included the rapidly ageing population and how financially prepared the country is to deal with the obstacles presented by this.
Whilst the UK was given a score of 65.0 out of 100 in 2015, earning a ‘B’ grade, in 2016 it was lowered to ‘C+’ thanks to a score of 60.1. This essentially means that whilst the UK’s pension system has some positive aspects, there are also considerable defects and risks which must be dealt with before the score can improve. If this doesn’t happen, both the effectiveness and sustainability of the system in the long term are re-evaluated by those calculating the index.
The downgrading of the UK comes after the introduction of the new ‘flat rate’ state pension in April this year. The Government hopes this will ensure most people who retire before 2040 will receive a better retirement income, but it will also mean that 16 million people or more who retire after this point will be worse off.